The new digital dynamics of competition

The digital revolution is rewriting the playbook for strategy. Business school professor Rita McGrath — keynote speaker at Fujitsu Forum 2017 in Munich — details the critical success factors.

Rita McGrath, professor of strategy and innovation at New York’s Columbia Business School and ranked in the top 10 of the world’s most influential business thinkers, can tell a lot from the line items on a typical management meeting agenda.

When she gets a distress call from a CEO struggling with his or her company’s innovation strategy, she pre-empts any consultative sessions by asking to see the agendas from the last three or four executive meetings.

“I’ll look for items about innovation, new technology, any theme related to a new direction. But even though these companies say they want to be serial innovators, that reference to innovation is typically item 18 or 20 on the agenda, right next to the Material Safety Data Sheet update.”

Her advice: lead the meeting with talk of the new, bold and experimental. “It may be a quarterly operations review, but an upfront comment on the successful test and huge potential of a 3D printing facility says you’re paying attention to innovation, with a mindset that acknowledges that innovation is hard, it’s risky, it’s failure prone, it’s unpredictable but it’s something the company passionately believes in.”

There is a vital reason such leadership needs to come right from the top: the opportunity to exploit competitive advantage has telescoped.

On that, McGrath likes to quote Indra Nooyi, CEO of PepsiCo, who a few years ago declared in a Harvard Business Review article: “It’s been a long time since you could talk about sustainable competitive advantage. The cycles are shortened. The rule used to be that you’d reinvent yourself once every seven to 10 years. Now it’s every two to three years. There’s constant reinvention.”

Businesses have to be willing to tolerate shorter cycles of adaptation, echoes McGrath. And more than any other factor, digital technology — with all the opportunity and disruption it is triggering — is demanding that management teams have to develop business innovation as a rapid and repeatable capability.

“Competition in a world that’s going increasingly digital has really changed,“ says McGrath in I-CIO’s exclusive video interview. “It’s calling into question many of the core assumptions that underlay strategy and management. The old way of thinking about strategy used to be that there were fairly substantial barriers to entry that meant once you’d established a competitive advantage it could be sustained for a long period of time. And in many industries that held pretty well for quite a time.

“But what we’re seeing today is, first, the pace of change is accelerating and, second, digitization is fundamentally changing the assumptions that underlie many industries,” she says.

That amounts to a fundamental shift in the essence of competitive edge: A move away from a world of sustainable competitive advantage — what many executives were taught in business schools was the primary purpose of strategy — to a world of transient advantage in which rapid and frequent reinvention is the only game.

That doesn’t mean strategy is dead or pointless, says McGrath. “In this atmosphere of accelerating change, shouldn’t businesses just try lots and lots of stuff and then follow whatever works? I don’t think that’s a great way to go about innovation because no one has enough resources to try endless options and, fundamentally, what strategy helps you to do is make the best choices under conditions of competition and limited resources. So as things move faster, strategy actually gets more important than ever.”

Not every business leader she encounters is willing to accept that new set of dynamics. “When you think about transient advantage, specifically when it’s digitally driven, you see stages of acceptance. There are still a large number of executives who just aren’t prepared to recognize that this is a new way of working and that the expectations for their companies, for themselves, are going to be radically different,” says McGrath.

Alongside those in denial are others who are aware of what’s going on “but are so freaked they are running around in circles, basically trying lots of different things.” It’s a stage McGrath refers to as “innovation theatre,” where the desire to be innovative is characterized by gestures like companies sending their teams to Silicon Valley or some other tech hub in search of inspiration and a new mindset.But the ultimate winners are those who think through how to bake innovation process into the soul of their organization. (See video ‘Creating a business culture for co-creation and innovation.‘)

Rita McGrath is a globally recognized expert on business transformation. Professor of strategy and innovation at Columbia Business School in New York City, she is the author of the bestseller ‘The End of Competitive Advantage’ and is ranked in the top 10 of the world’s most influential business thinkers.

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